tv [untitled] June 16, 2012 1:32pm-2:02pm EDT
thanks. that's what they aim to do but will they drown us all and liquidity pumping an extra liter of liquidity into a container losing gallons by the day does nothing to change the deflationary dynamics will discuss plus it's friday we'll show you the incredibly creative way one of our viewers came up with to distinguish between a head and a proprietary trade once and for all since jamie diamond says he can't that more of your feedback let's get to today's capital account.
all right let's quickly recap what we're looking at this weekend with greek elections now you could say that the political parties in greece have fallen into two categories those in favor of the two hundred forty billion euro bailout loan of course to extreme austerity measures and those against it now here are the major players were looking at sunday's series the party led by alexis tsipras this is one of their rallies there he is ok he's running on a staunch anti austerity platform he stated publicly that he believes greece will not be pushed out of the euro even if they break with the austerity measures tied to the bailout on the other side we have new democracy leader antonio is some of us now he's campaigned on a platform to keep greece in the euro zone but he's been walking a tightrope of promising fiscal adjustments to ease the pain associated with the memorandum now on june first is the last date opinion polls were allowed to be publicized new democracy led with twenty two point seven percent syriza had twenty
two percent and eleven point two percent but i should mention there is a two point eight percent margin of error so it is really close between new democracy and serious now if there is no clear winner on sunday forming a coalition could prove difficult again because it failed last time there are three hundred seats in the legislature and one hundred fifty one are needed to form a government so if new democracy gained enough seats they could form a coalition with however if syria is victorious the composition of any coalition headed by the left wing party will be more difficult to form so those are the nuts and bolts now we do have a unique situation because we have a great producer dimitri you all know one he's not only well versed in the history and politics of his country but has reported on the ground in athens during this crisis so let me give you our take seen largely through his eyes the problems in greece are broadly painted by the media as economic in nature ok with the solution
. always presented in a political framework greek so the conventional wisdom goes borrow too much and live beyond their means for too long and now the time has come to pay the bill how many times have we heard that so governments therefore must work together alongside central banks to write the greek wrongs and second reason the rest of the eurozone on the path towards growth and prosperity but this ignores certain realities realities which are just as responsible for the riots we have seen that you see they're just as responsible as they are for that as for the deposit flight from greek banks whatever policymakers think they know about greece greeks themselves know one thing very well and this is that they cannot trust anyone least of all their own politicians pulling their savings out of the bank before they are confiscated or turned into devalued drachmas is only one example of this another
can be seen in the collapse of investment within the greek economy after all who in their right mind would put time and capital to work in an economy whose future is so bleak under the current dynamics and yet this very collapse in investment feeds a further collapse in growth so that the economy and the society were made end of perpetual contract of freefall if you were trying to design a depression you probably couldn't do a better job than what is happening by force of circumstance in greece today and yet the simplest and most obvious solution that of a unilateral default is something that the greek people and especially their politicians have really resisted so why well one reason is that the issue of euro membership is just as much if not more a political issue for greece than it is an economic one the days of the drama were not a pretty time inflation was rampant the greeks felt more isolated geopolitically than
they do today. military spending and preparedness with greater urgency given historical tensions with turkey and relations with the rest of europe or less familial shall we say in short breaking from the euro is not a decision to be made through simple mathematical equations there are costs that cannot be factored in and no motions they cannot be measured not by a pool not by any vote so even with elections scheduled for this sunday in greece the future remains just as uncertain today as it was last week or even last year because even if for example the left wing parties series against power no one knows if it will carry through with a default on the nation's debt or really break with the memorandum and the austerity measures are greeted between the previous government and its international lenders that all said let's talk about the outcomes we may see after this weekend constantine as harry's economist and coeditor of this book what if
ireland defaults situation he knows well and he can really speak to all of this he's coming to us from dublin and first thank you so much for being on the show today and. what we're happy to have you especially on the eve of elections this sunday is so you probably heard my whole intro to this i want to ask you along those lines you know this greek situation is always framed are typically framed in the mainstream media as an economic one but are there political issues coming into play heavily here that cannot be discounted and how much of a role do you think that's playing well as you pointed out absolutely one hundred percent correct this is an interplay between baltics economics then behavioral its historical and cultural and geopolitical aspects this is what happens when the crisis is allowed to reach over the five year period and it pulls me because even in brussels no nonsense like it will reverse and it snowballs into crisis grows different dimensions this is also why it's more difficult to see that these. now
the greeks will vote you know in order you know in the direction of exit in the euro zone and so that's why in my probability kind of analysis right now it's about only forty percent chance on greece exiting the euro zone within the next twelve to eighteen months the reason for it is as you pointed as well as huge amount of costs which is associated with it and the fact that in order to facilitate orderly exit by greece the european union will have to spend in effect exactly the same amount as would be required in order to keep greece within the euro zone itself what about this professor grazier because greece is in a depression ok its economy has contracted for thirteen of the last fourteen quarters but has spiked this which is something you just mentioned greeks are sending mixed messages you know they want to stay in the euro but they don't want to tap austerity so what about a situation where greece defaults but stay then the euro. if if greece defaults you know large really it will probably be forced to leave the euro simply because the
disruption which it will do us as a result of that is going to be felt across the entire eurozone system financial system and particularly the banking systems we're seeing what's happening in cyprus for example right now where even though all the latest structure previous destruction of greek that has resulted in insolvency in the banking system which the exchequer of cyprus is now expected to cover can't cover and as a result of that the cyprus is not even on the top line on the edge of applying for the bailout itself if greece goes on a disorderly fashion and i think it's been a small probability of about twenty percent roughly speaking. the whole how breaks loose across the eurozone and that is most likely what will happen is that the euro zone and the certainly i.m.f. will have to put a stop on greek bonds has been used as collateral in the emergency can you do assistance operations with the national banks and also in the e.c.b. and there's the result of the police will not have access to funds in its banks
it's all. will default effectively on the payment system capital controls will come in political system will become destabilized once again behavior is the greeks oh it is talking about food there are still going to provisions as we know from the reports from athens and from. there is a capital flight going on that capital flight is going to accelerate through the illegal black market channels where people will be withdrawing from the banks the money where they have access to this money so for example the deposit boxes jewelry and things like that will be thrown out the marketplace the whole system collapses and there's a lot of that there's a number people that will have to leave you know there's an opportunity to facilitate a default real deal for all this is something that i would call the marshall plan which has the problem across the entire eurozone at certain point in time not just in greece but also in other countries like ireland portugal spain other countries suitable for this type of resolution with the. you know the fashion would be actually another looms in belgium as well. you know what i want to ask is about
a slightly different scenario because you say of greece defaults are going to get pushed out of the euro zone and that's just the way it's going to be but you talked about to kind of on a more much a much smaller scale i should say about a town where you are in ireland that they adopted the old irish currency and use that alongside the euro so pegging to that story no pun intended or maybe a little intended what if you had a situation where great if the government went back to the drachma they printed as many drachmas as their hearts desired but the private sector remained on the euro and no one's banking account saw their euros converted to drachmas and no private debts were converted to drachmas and that was the scenario well the minute the minute the various breeds its own currency or any country within the euro zone produce its own currency if there is no longer a common currency area it was no longer a single currency area the more injury policy of the city becomes entirely
destabilize the fore. there are some arguments to be made that some local currencies do emerge idiotically for example in interview there was a small town which did you mention the down fairly medium size city for i understand that it's called monaghan where the old irish dance are now fully traded for about two months now where the even more national. retail outlets have taken those as a form of payment as well there are other forms as well that a barter forms organized part of forms which are merging across europe all of this is the first what we call in economics the first stages of the collapse of the common currency where people started to find the systems of payments and systems of transactions that they trust much more or that are available to them more freely and easily then the existence or official currency were you going to see and we're already seeing that them in some peripheral countries first and foremost the real big step is when the governments local authorities start monetize them their
transactions with businesses suppliers of goods and services to the governments through the means other than the euro we've seen that that's happening right now with local authorities in some parts of spain it is happening right now with local authorities a large number of italian local authorities and it certainly is happening with greeks where you know what the fact of lead instead of using euros to pay for goods and services they're using late or future tax load villages or even past start a bill it is as offsets as well all of the first stages of the collapse of common currency and that's well established by the research of for example people like brain fart and grog of. my hand example and the rest of the searchers in the area of the crisis and collapse of currencies interesting as we do see that spreading across their euro zone in many of these and getting countries when we get back from the break i want to talk to you more in-depth about some of these greek default scenarios and what exactly happens in various sectors so stay right there we'll have more of constant anger and you have economist and coeditor of what if ireland
those huge earth covered. welcome back analysts are sure sizing up what the impact of the greek elections will be on sunday we're getting into the nuts and bolts of this scenario is our guest believes there is a forty percent chance that there could be a greek exit according to his probability i want to talk a little bit more about the nuts and bolts of what happens to euro's in greece if there is a default scenario he has a number of default scenarios so let's talk about this more with constantine of he's an economist and coeditor of the book what if ireland defaults he comes to us from dublin so professor good you have i want to get a little bit more into these default scenarios because this is something that you know as a normal person that covers this kind of baffles me a little so in a situation where greece defaults and goes back to the drachma what happens for
example to normal greeks bank accounts where they have their money in euro's in greek banks there are fifty thousand euro bank account become a fifty thousand drachmas balance. well that's you know that's a very big question because there are different ways of doing it there are different ways of any money ties and economy most likely what will happen in any scenario where there is a default on no default exit on no exit greece is going to face some capital controls the severity of those capital controls and dilute the length of those capital controls this thread across say for example household accounts versus that accounts of the corporates banking and financial institutions accounts that spread will be and that caused the or the severity of those controls will be determined by the particular scenario how say for example disorderly and on facilitated is the exit of goodies from the eurozone either way they count the funds that the greek
savers for example ordinary families or businesses have will be the denominated into the domestic currency to the full extent if given the greasers record be kerry is going to that position right now it is highly unlikely that there will be a lot of significant if you want real real interest rate just very real exchange rate adjustments on the accounts and in other words they will not provide a safety cushion for people against a future devaluation the second will be probably at the exchange rate close to the one which greece went into the you in the first place but that will follow immediately with a devaluation of twenty to thirty percent within literally hours of introduction of that exchange rate and that will continue to develop a show that it will continue expectation is that drucker would have to devalue by about sixty percent in the meantime before it hits sixty percent it probably will devalued by seventy percent first and then will strengthen up a little bit towards the sixty percent this is all of course not exact science because we don't know exactly action it also will depend on how much it is will
default on will these default on the only domestically held down or we will default also on international how do you denominated that all of those things are uncertain is what we do. is that greece right now is probably in the as bad situation as argentina was urgent care and default was very hard it was very direct and it was very abrupt and this is a lot of that we can expect a very similar time in greece itself with probably more of them in this and i'll use a kind of a. default increase during the exit is the fact that under my prediction or under my view of the way things will play out if he stays within the euro zone. still implies capital controls it's still employ a severe restrictions on the abilities of individuals and businesses to transact within the greek economy and it also still implies effectively for some down or
writing down significant amounts of debt that the economy is carrying currently while before i get into a little more of that different sectors and the scenario talking about which sounds pretty dire i know with everything that you're saying which sounds like a really bad scenario i know it sounds horrible but professor gurdjieff have at this point what a default in some ways be the best thing a because at least then you have a bottom you have a reset i mean already you have a depression you have fifty percent youth unemployment twenty two percent unemployment for everybody else billions of euros flying out of the greek banking system capital flight you have tourism declining you have businesses shattering nobody wants to invest would at least put an end to that end hey start over absolutely at this stage the system is so riddled with errors errors which were induced onto it over the years of being in their own currency environment in their own interest rate environment in their own policy environment but also areas which
were introduced by the solutions the so-called inverted commas solutions that the european union has been putting forward as a result of that you're completely correct the only thing that greece has the only feasible exit. he's has right now in some sort of we default the only question then becomes what type of a default and there are three types of default that you can think about one of those is greece defaulting on its own with no support from the euro zone that's the worst case scenario worst destruction possible the other one is kind of you know much more benign whereby you can use for example defaults with the support of the eurozone but that support is given in the form of new debt as the type of destruction that we have seen from the end of the last year the beginning of this here we know that doesn't work so the only thing which we can imagine is that greece effectively marshall style. in order to write down use the funding from the euro zone to write down existence that it's outright and that doesn't carry if you
want to go but that's down the road for the economy as well that would be probably the least disruptive even with the least disruptive it will be costly and very difficult for you to get corny but nonetheless that is the only way that we can see do you see meaning within the eurozone greece eurozone itself remain intact and you know at the same time resolving the problem by the way let it stress once again that this is just the beginning of the process of write downs that will happen across the entire eurozone eurozone itself is deeply in doubt the leverage and that has taken place in the united states has not taken place in the eurozone at all and as a result of that we're looking at the right downs across the eurozone not just because there is just too much to get i appreciate you for laying out the beginning of this kind of scenario cascading domino effect that you say we're bound to see that's constant tangere jeff thanks so much he's an economist and coeditor of what if ireland defaults.
heavy stuff going on let's lighten it up and on a lighter note it's friday so it's your feedback you guys have lots of fun things to say yesterday we talked about oil and definition no fists wrote that the oil graph we ran through fifty one is crazy wrong i know we didn't consume more than we produced for thirty consecutive years please explain it ok so here's a graph if we can bring that up and as you can see on it is that what it shows is that oil consumption output is says production which is
a little confusing because how can you consume oil that doesn't exist well the difference between crude output and total oil consumption comes from natural excuse me natural gas liquids so that's what the chart is showing so that's what makes up for the difference but i absolutely should have been a lot more clear about that so thanks for for bringing that up so i can clear it up now that was in an episode where we interviewed byron king and frank markopoulos tweeted i think lauren lyster interviewed the smartest man in the world about oil today awesome sause well awesome tweet because i have to agree he was a wealth of knowledge on oil and several different energy sources i mean who knew that mixing beryllium with your rainy and the design of nuclear reactors makes fuel rods almost no proof and that that technology exists well that's just one of the many things he said if you missed the interview can watch it online it was yesterday and wednesday of course jamie dimon testified before the senate banking
committee or. maybe the committee testified to its love for jamie dimon however you want to look at it nonetheless we interview intell traded the capital to interview heidi moore of marketplace and kathy mock one said great show as usual heidi is great but please show us j.d.s. executive cufflinks well if you missed it here they are ok jamie diamond wearing not his heart on his sleeve but the president's seal you know i guess it only makes sense i suppose as he had lawmakers wrapped around his figure just bring it all together moving on richard ackland sin tweeted that some financial education for jamie dimon and jamie dimon it was on his twitter feed if we could bring it up he showed us to distinguish between a proprietary trade and had a obviously it's a job but jamie diamond that's how he seems to see it at least and finally zero three greg maddux said the only thing more sickening did watching the pandering by
the politicians and the stonewalling by diamond was the coverage by the mainstream media thank you lauren and capital account the whole team i should add for the only honest coverage of the hearing that i saw well thank you for seeing it that way we worked really hard to bring you it there you can see his comment there now there was also an interesting review or a bit of commentary on this network and i wanted to bring up a passage that actually my boss showed to me in this article it says that the presenters on our t.v. mostly dark haired young women un troublesome to the i talk with the casual disdain about us economic bigwigs like ben bernanke and tim geithner as if these men were all together mad. you know. what can i say i really take offense to this i think i would be considered more a light haired that dark and you forgot to mention paul krugman european central bankers and technocrats and you probably should have thrown in the us big. banker
banker big wigs like jamie dimon and lloyd blankfein and i would characterize my casual does dana as more of a professional contempt for their economic and financial policies priorities presumptions amp or scription so one comment just after that i wanted to add to to the author noted that the host lines of argument are often too strange or difficult to follow and to that i know economics and finance can be very confusing to understand but i encourage you to give it a try you might learn something and more working on bringing back word of the day so that might help to you at all and you with that note that little word of encouragement because that is all we have time for that's our show today thank you so much for watching and make sure to come back next week. and in the meantime you can follow me on twitter at lauren lyster give us feedback on the show or any you missed the you tube dot com slash capital account plus you can catch out of catch all of our shows in h.d. on hulu and google alone at hulu dot com slash capital dash accounts and from
u.n. observers in syria suspend big titties because of the escalating violence meanwhile moscow denies the pentagon's claims that a russian military cargo ship is carrying weapons and troops to syria. the final round of egypt's presidential election is underway but many of the disenchanted with the choice between an islamist and mubarak's former prime minister the ballot comes up to the country's supreme council dissolved to solomon. and thousands of italians are much against cuts in rome while the euro as fate hangs in the balance with requests to go to the polls to determine the future of the single currency. now welcome to you do you live with me to bum with a top stories next so we head to all washington studios for the early on the show but before that will bring you some of the main headlines coming up this hour.
we're going to be alone a show where we get the real headlines with none of the mercy or can live out of washington d.c. now is america going to take a look at the president's announcement of a new immigration policy some undocumented students will no longer have to fear deportation but a lot of critics say it's not nearly enough then we'll have our financial check up with laura lister host of the capital account here on r.t.l. talk about greece allen stanford and jamie diamond and also know and coming up next we scratched.